Tuesday, 13 January 2009

That isn't how it works

There is, perhaps, little more dangerous than a Labour politician who doesn't understand economics being in charge of economic policy. Presumably buoyed up by the congestion charge defeat in the Manchester election, campaigners have made a demand for a local referendum in Nottingham over the workplace parking levy. Ignoring for a moment that one should always be suspicious of a tax that dare not speak it's name, the fight appears to be over who will pay the charge. The campaigners say the employees, the council say the business community. In fact, so convinced by the 'rightness' of the tax, Coun Urquhart makes some pretty astonishing claims;

"During the current economic climate, it is more important than ever to help stimulate economic growth. The WPL package will play a key role in attracting new businesses to Nottingham and securing a bright and sustainable future for the city."

So, let us look at the economics of the tax.

1) The employer pays the tax.

Assuming that the employer isn't a monopoly , the employer in question will have to compete with other companies who may well not pay such a tax. Thus, he cannot pass the cost on to his customers, as they will simply go elsewhere. As he has a duty to his shareholders to maximise profits, less they invest in his competitors, he will therefore have to cut costs. Thus, he is likely to either relocate or lay off staff

2) The employer passes the tax onto the employee

In this scenario, those who travel into the city, who have highly skilled, transferable careers will be tempted to cut their tax bill by several hundred pounds by simply working in any one of the other employment centres in the East Midlands. Those who are not in such demand, and who cannot either relocate or demand higher wages (which causes the same problems as the scenario above) will simply aim to transfer to jobs where they can use public transport. Those outside of the 'improved' public transport areas will be tempted into their cars, but not to travel into the city, but to it's outskirts. Thus, employers have another incentive to move from the city ~ to attract staff at lower wages, or to avoid paying the public transport rent premium.

As you can imagine, it doesn't take a huge amount of imagination to realise that this could be self defeating from a revenue point of view as fas as the local economy is concerned, as business and people regard Nottingham City as a less attractive place to live and do business. One thing is sure however ~ if the city does become an economic ghost town, traffic levels will reduce, so the tax will have it's intended effect in that regard.

To counter this, the tax advocates may well argue that any effect will be minimal, as the charge will be so small. But then it won't tempt people out of their cars, so it really does just become a revenue raising scheme for a council with a fondness for spending your money for you.

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